Moody’s upgrades Chesapeake debt, rates notes Caa2

Moody's Investors Service said it assigned a Caa2 (LGD5) rating to Chesapeake Energy Corp.'s proposed $750 million senior notes due 2027 and upgraded the company’s senior unsecured debt rating to Caa2 (LGD5) from Caa3 (LGD5). The agency affirmed Chesapeake's Caa1 corporate family rating, Caa1-PD probability of default rating, B3 (LGD3) senior secured credit facility, Caa1 (LGD4) senior secured second-lien debt and SGL-3 speculative-grade liquidity rating. The outlook remains positive.

Proceeds will be used primarily to tender for the company's second-lien notes due 2022 and up to $200 million of notes due in 2020 and 2021, with priority given to the second-lien notes.

The agency said the upgrade of the unsecured rating reflects the prospective reduction in secured debt resulting from the tender offer and the resulting improvement in recovery prospects for Chesapeake's unsecured debt.

Chesapeake's Caa1 corporate family rating incorporates its improving but modest cash flow generation at Moody's commodity price estimates relative to the company's high debt levels, Moody’s said.

The rating benefits from Chesapeake's dominant positions in several major North American basins, given the operating and financial flexibility these assets provide, the agency said.

Moody’s said the positive outlook contemplates further deleveraging, likely through asset sales since the company is not expected to generate free cash flow in 2017, and that the company will maintain adequate liquidity.

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